Regulatory and bank challenges are pressuring cryptocurrency exchanges in the country, as evidenced by a 90% decline in volume on bitcoin trading platforms. The Reserve Bank of India, its central bank, has not put the hammer down on trader accounts, but Indian banks have taken a two-pronged approach that’s denting trading activity, including closing bitcoin exchange accounts and limiting cryptocurrency transactions among locals.
Dehli-based bitcoin exchange Coinsecure has suffered through some of the worst of it, with CEO Mohit Kalra telling Economic Times the trading platform’s volumes are off from between BTC 300-400 daily at year-end to a range of just BTC 30-40 today.
The writing was seemingly on the wall, as the government’s Income Tax Department at year-end 2017 did a sweep of nearly a dozen bitcoin exchanges, searching for customers who traded cryptocurrencies. Tax officials discovered and alerted some 100,000 residents who were responsible for high-volume trades, as per the Economic Times.
The involvement of tax authorities has been exacerbated by the action of public- and private-sector financial institutions that have moved to freeze the accounts of bitcoin exchanges. The banks include –
- State Bank of India
- HDFC Bank
- Kotak Mahindra Bank
- ICCI Bank
Meanwhile, customers are similarly facing restrictions, with banks having banned credit, debit and prepaid card transactions including bitcoin and altcoins. The steps are more severe than the action taken in the United States, where a handful of top banks prohibited bitcoin transactions with credit cards.
But if curbing bitcoin trading is the intention, this move by banks and the tone of regulators may backfire, as investors instead shift to using cash for bitcoin transactions. This would complicate the process of tracking transactions to support know-your-customer and anti-money laundering protocols.
A Run on Bitcoin Exchanges?
Blockchain and cryptocurrency industry trade group representatives in India consider the latest actions by banks as blatant “overreach,” without any instruction from regulators, saying: “Without any clear mandate either from the RBI or other regulators, asking us to close down our (exchange) accounts while refusing to give in writing what the reason is just disruptive to our business.”
Meanwhile, this has led to confusion and angst among investors. Bitcoin exchanges are having to manage an influx of user complaints on their trading platforms amid traders not being able to access funds for days or more. It’s a function of the banks freezing the accounts of these exchanges, which has tied the latter’s hands for issuing withdrawals.
In the interim, BTCXIndia and ETHEX India have both closed their operations until there is greater clarity on the regulatory front. Shaktikanta Das, an Indian Finance Ministry official, doesn’t believe cryptocurrencies can be reined in and instead wants to issue a blanket ban, similar to the approach taken by China.
Featured image from Shutterstock.
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